EU Commission issues “Notice to Stakeholders” on Brexit and State aid

On 18 January, the Commission issued a Notice to Stakeholders setting out its view of the current legal position in relation to Brexit and State aid. (The Notice is not, I think, to be found anywhere on the DG Comp part of the Commission’s website: it is in the “Relations with the UK” section.)

The Notice covers the position under the “run-off” provisions of the Withdrawal Agreement in relation aids to granted by the UK, and procedures started by the Commission, before 1 January 2021. It also explains that the withdrawal of the UK has effects on various provisions of EU State aid law (eg guidance referring to cooperation between Member States will no longer apply in relation to the UK).

More interestingly – and more controversially – it addresses the application and effect of Article 10 of the Ireland/Northern Ireland Protocol (see blogs on this site, passim). It confirms the Commission’s support for the view that point that Article 10 does not just apply to State aid measures that relate to the production of or trade in goods: rather, it applies to “any public support for any economic activity … as long as it can be established that the public support is liable to affect the relevant trade” between NI and the EU. To hammer that point home, the example is given on page 7 of “Incentives to the financial services industry that would allow manufacturers or electricity companies engaged in trade between Northern Ireland and the Union to access cheaper credit, thus gaining an advantage
over their trading partners
.”

Further, the Notice states in terms that the concept of effect of trade in the Protocol “has to be read in light of the same notion in Article 107(1) of the Treaty on the Functioning of the European Union” (a proposition that has been questioned, although it seems clear enough given Article 4(3) of the Withdrawal Agreement).

The Notice then turns to the effect of the December 2020 declaration on Article 10 by the EU side of the Joint Committee on the Protocol, which offered a justification for the UK government to withdraw its proposal to breach the Withdrawal Agreement by amending the direct effect of that Article in UK law. As I commented at the time, it was unclear that the declaration’s qualification of the concept of “effect on trade” (that is could not be “hypothetical” or “presumed”) under Article 10 the declaration had any effect in practice (no court, regulator, or complainant is ever going to accept that their reasoning is based on hypothetical effects, so ruling out the possibility of hypothetical effects meant nothing) . It is apparent from the Notice that the Commission does not think that it had any practical effect either, since it notes that “This qualification is fully in line with the case law of the Union Courts” and goes on to state that “The declaration therefore clarifies, but does not alter, the notion of ‘effect on trade’ as interpreted by the Union Courts“. And it goes on to state that “The case law thus creates a presumption that an effect on trade exists as soon as a financial support from State resources strengthens the position of an undertaking compared with other undertakings in a market subject to trade” – the point that lies at the heart of many Commission findings of potential effect on trade in cases where the economic analysis leading to that conclusion is less than obvious.

For those not capable of taking a hint, the Commission then spells out what it thnks that that means, directly addressing the question of “reach back” (the issue of the application of Article 10 to aid granted to undertakings in Great Britain: “In particular, aid granted by the United Kingdom to undertakings that are not located in Northern Ireland may also fall under Article 10 of the IE/NI Protocol if the potential of an effect on the relevant trade between Northern Ireland and the Union can be demonstrated. This might notably be the case if the undertaking operates in, or trades with, Northern Ireland, as the aid might reduce the possibilities of Union competitors to be active in that market” (emphasis added). In other words, any aid to a GB undertaking which merely “trades with” Northern Ireland could fall within Article 10: a point again hammered home with an example on page 7 “Aid to a manufacturer in difficulty if its goods are available for sale in Northern Ireland” (emphasis added). And, in a final hammer blow, the Commission directly addresses the neuralgic question of tax measures, observing that Article 10 (and its powers to quash measures, including Acts of Parliament, and order recovery of aid) could apply to “A tax scheme granting a direct or indirect benefit to any firm trading with Northern Ireland” (emphasis added).

Finally, the Commission aims at the claim that the UK Government can freely compensate NI businesses that suffer as a result of the effective customs barrier now in place between Northern Ireland and Great Britain, noting the provisions of Article 5(6): “As a result, the United Kingdom will be able to waive tariff debt or reimburse traders as foreseen in Article 5(6) of the IE/NI Protocol, but only in accordance with the EU State aid rules. To that end, reimbursements of more than 200 000 EUR over
three years (i.e. above the de minimis threshold) would be subject to notification to
the European Commission, unless an exemption applies
.”

The views of the Commission are not of course binding. But it is likely that Article 10 and 12 of the Protocol require a UK court at least to consider its views on questions of law within its purview, not least given the Commission’s powers and functions under those Articles. And the terms of the Notice, and in particular the choice of examples, should give pause for thought to any UK granting authority or beneficiary considering any major aid measure.

GEORGE PERETZ QC

This entry was posted in Brexit issues, Uncategorized. Bookmark the permalink.